Cost Segregation Experiences?

Question

I purchased a four unit building last year for $350K and replaced the roof. I'm looking to get a cost segregation done and I got several quotes from Cost Seg Guys, Seneca, etc.

Seneca was estimating a reduction in my taxable income by $75-95k.

CSSI was estimating a reduction of $40-60K which is a significant amount less. They told me they like to under promise in overdeliver, but I don't want to move forward with somebody that is telling me on their estimate that I will  get a reduction of half of whatever every other company is telling me..

any experience with these companies?

Alex Torres · Answer

The 2x spread is almost always a methodology difference. Engineering-based studies (RCNLD, per IRS Pub 5653) identify every component individually. Survey-based studies apply rule-of-thumb percentages to a basis total. Same inputs, very different outputs.

Sanity check on your numbers: $350K 4-plex, ~20% land = ~$280K depreciable basis. A 4-plex typically reclassifies 28-38% into 5/15-year buckets because you're multiplying unit-level components by four (4 kitchens, 4 bathrooms, 4 sets of appliances and flooring). That's $78K-$106K reclassified.

Your higher quote lands in that band. Your lower quote is ~14-21% reclassification — conservative for a 4-unit, which could reflect either a survey methodology or a more defensive classification approach. Worth asking them directly why their number is lower than the typical range for a 4-plex.

Before you pick, ask BOTH firms:

1. Engineering-based (RCNLD) or survey methodology?

2. Site visit or desk study from photos?

3. What % of basis is reclassified and into which specific buckets?

4. Sample redacted report so your CPA can review the format?

5. Audit support policy if the IRS challenges it?

6. Critical for your situation: are you including a partial disposition election for the old roof you replaced? If the old roof had undepreciated basis when you removed it, you can write off the remaining basis as a loss in the year of replacement. This is a separate election from cost seg,    but any competent firm handles it in the same engagement. Typically $10-20K of additional Year-1 deduction that most initial quotes don't include.

"Under-promise, over-deliver" isn't necessarily bad — it often reflects a conservative audit posture. But make sure you understand WHY they're lower. Methodology rigor is defensible. Rule-of-thumb padding is leaving money on the table.

Ask both firms for a sample redacted report and pick the one your CPA would actually want to hand to the IRS. The winning study looks like an engineering document (component tables, line-item detail, case-law citations, MACRS schedules), not a short summary memo.

Alex Torres · Answer

Great add. That's the single best filter — ask them to show you the actual component list, not just "30%  reclassified." If the report has 80-100+ individual line items (flooring by room, each appliance, landscaping  broken out from hardscape, fence by material type, etc.) with a unit cost and quantity for each, it's  engineering. If it's a one-page summary with three percentage buckets and no backup, it's a template.

The line-item detail is also what your CPA needs to file Form 4562 correctly and what the IRS looks at first    if they ever review the study. No line items = no audit defense.

Jonathan Hersh · Answer

I haven't used either of those companies, but they are both reputable.

On a $350k fourplex, your adjusted basis is probably ~$270-290k after land. A typical cost seg on a 4 door reclassifies 25-35% of that into 5, 7, and 15-year property.

So the math:- ~$280k basis x 30% reclassified = ~$84k accelerated depreciation- Minus what you'd already get from straight-line 27.5yr (~$10K) = ~$74K net additional deduction- Your new roof adds more, portions of a roof replacement qualify as 5yr and 15yr property Seneca's $75-95k range actually lines up with that math, especially including the roof. CSSI's $40-60k is either genuinely conservative to set expectations, or they're using a less aggressive classification methodology."Under promise and over deliver" sounds nice, and might be driving the results. If company A tells you $85k and company B tells you $50k, and the real answer is $80k, company B didn't under-promise, they just had a less accurate estimate.I'd push CSSI to itemize their estimate before ruling them out, but the Seneca number isn't unreasonable for what you're describing.

Happy to answer any more questions about the specifics! Seems like either way it's worthwhile to do.

Julius Vincent · Answer

@Lolo Druff - My contact at CSA Partners recently came in at $180K of year 1 depreciation on a $540K property, a 33% Y1 depreciation rate / 37% segregated depreciation rate. Let me know if you'd like another quote and I'll get you in touch.

Aaron Zimmerman · Answer

At the end of the day, they're just estimates so it's hard to know exactly. I've had really good experiences with Cssi but it does Depend who you work with.

Jonathan Hersh · Answer

This is a really good breakdown @Alex Torres. The only thing I’d add is to ask them to reconcile their estimate back to actual line items, not just % of basis, but what specifically they’re putting into 5/7/15. That usually makes it obvious pretty quickly whether it’s a real engineering approach or a template.

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